Is NVIDIA a Monopoly?

By Patrick Moorhead - April 2, 2024

The Six Five team discusses Is NVIDIA a Monopoly?

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Transcript:

Patrick Moorhead: Is NVIDIA a monopoly? So through everything external that I’ve said about Apple, I had people say, “Pat, first of all, I hate you, but also Apple is not the monopolist. What about NVIDIA?” And I had somebody who showed me a matrix that said NVIDIA had 97.7% of the market, AMD had 1.8 and Intel had 0.6. Now, the poster never got back to me to tell me what market, what region, what’s the duration of time. But here’s the point, folks, it’s not illegal to have 97.7% market share. What it’s illegal to do is use that monopolistic power to squash competition, raise prices or reduce innovation. And as we talked about on this show, you have to have a well-defined market. What is the market that a company would be a monopolist in? And oh, by the way, even if you have 50% globally or 25% globally, if you have 75%, actually 50% at the bar here in the United States, that could be the case.

So with NVIDIA, NVIDIA does a lot of things, right? They’re certainly not the AI, they don’t have the AI monopoly because AI goes across smartphones, PCs, and the data center. People could say, “Oh, they have a monopoly and data center training,” which by the way, statistically is correct, but remember, it’s not against the law to have monopoly market share, right? You have to have the durability test too. The one that the Department of Justice used against Apple was essentially said, “You have had this monopoly position for a decade,” okay? And with NVIDIA, I don’t know, has it been a decade? Probably more along the lines of five years. Now if you can’t show how they reduce competition.

Now with that said, the other side of my mouth, they just want to say that NVIDIA does need to be very careful to make sure it doesn’t, let’s say, restrict certain accelerator vendors onto their software and APIs, right? And it’s kind of like a similar Apple conversation, which by the way, other posters about Apple said, “Pat, you’re an idiot. The government can’t force a company to open up its APIs to its competitors.” Well, guess what? Newsflash: that’s exactly what the US government did to Microsoft is it forced it to open up APIs to competitors. So when it comes to Nim, when it comes to CUDA, part of all the lawsuits against Intel, including AMDs, was that Intel was using CPU ID with ISVs that said only genuine intel with the CPU ID would actually work. And for AMD, the software wouldn’t work. So NVIDIA has got to watch it. To me, it doesn’t pass the monopolist test, or the illegal monopolist test at this point.

Daniel Newman: Yeah, you’re always balancing the two. You’re dealing with consumer harm and then you’re dealing with competition. And that’s always kind of those two different litmus tests for anti-competitive behavior. And then of course anti-competitive intent versus monopolistic market share, which you can have a monopolist market share but not be showing any anti-competitive behaviors. This is kind of interesting, because there really was no competition for a long time, because they’ve been basically doing this and building this. Jensen came out and basically said, “We create markets. We don’t compete in markets.” So when you create a market, you get enough size and scale like, what they built the framework top to bottom. It really didn’t exist. And so, for accelerated computing, there were some different efforts being made by different companies, but no one had really completed the stack and that was where NVIDIA got a lot of its leverage early on.

I’ve said this for a long time, Pat, as we’ve sort of tried to debate this whole monopoly thing with different companies, whether it’s been Apple, or Qualcomm, or others, is the FTC and these other regulators, should they be looking at stopping monopolies before they become monopolies? And how much should they be getting involved in that? Is it the burden of proof of like, “You are already doing this,” should the person have to commit the crime and then you fix it? Or, it was kind of like when Adobe in Figma deal, it was like that really wasn’t a monopoly, but they kind of stopped it because it was like, well, it could become one.

Patrick Moorhead: It’s like PreCrime.

Daniel Newman: It’s like PreCrime. So we’ve got, here I am Tom Cruise, I’m sitting here, it’s Tom Cruise, right? I’m better looking of course, but I’m sitting here with the ball, I’m waiting, “Oh shoot, it’s me.” Jensen’s going, “Oh crap, it’s me.” I do think directionally that is where it’s going. I mean, I don’t see, like, the CUDA lock-in is a real thing. It’s definitely being countered with some different layers of abstraction and frameworks. Everybody’s trying to address it. There’s not lot of optionality for hardware. There’s some different compilers out there that are enabling, but the fact that it’s very, very hard to move applications for accelerated compute from one hardware to another could be seen as something that is somewhat monopolistic.

I think if anything, it’s sort of the systems approach. I think someone at the Broadcom Investor Day called it an AI mainframe, is what they kind of described it as. And I think the fact that they’re going to the point where it’s almost impossible for anyone in the supply chain of NVIDIA to make money besides NVIDIA. And that’s going to be an interesting inflection as that continues to proliferate through the market, right, is they are uniquely outpacing every other company. No matter how much value is added throughout the supply chain, they do take up the majority of the bomb.

Again, that’s not monopolistic in itself, but if there’s no way for people to sort of build it, so this is where things like ethernet and different EFA of what different companies are doing to build the networking part, which NVIDIA is trying to cram into the quote, “AI mainframe,” the cabling, the box, the power, everything that, as it goes and becomes more consolidated. But the consolidation of the hardware, added to the software, added to the immobility of the data and the applications does create some level of concern that it could become a monopoly. What I say is: not a monopoly now, could it become one? Yes. Is this going to be something we’ll keep debating? Absolutely. I think we’ll know a lot better in about a year when we start to see some capacity, some indication of how much other hardware is being deployed in the market that will have a better idea if this portability of applications is real, and if in fact NVIDIA is on its way to Monopoly.

But to their credit, congratulations on winning 97.6% of the GPU market. There’s a lot of competent companies that have not competently been able to develop competition in a meaningful and immediate fashion, not easy to do, and that’s why they have this kind of power right now.

Patrick Moorhead: That’s good, man. I don’t know if it’s 97.7 of the GPU market. It’s probably 97.7.

Daniel Newman: I think it’s 96.

Patrick Moorhead: Of the data center. But anyway-

Daniel Newman: Yes, sorry.

Patrick Moorhead: Hey, ask your-

Daniel Newman: Data center GPUs. We’re not talking about gaming GPUs right now.

Patrick Moorhead: Hey, will you get your data practice and start?

Daniel Newman: I have an AI chip set data coming out in end of May.

Patrick Moorhead: I’m so excited for that. And you know what? Even though I didn’t do it, I’m still going to talk about it.

Patrick Moorhead

Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.